If you depleted your emergency fund, tapped into your retirement savings, or had to take on more debt due to a loss in income, it may be time to try a new strategy to build back your wealth for financial security. If you’re in a two-income household, consider banking one income to increase your savings, pay down high-interest credit cards, or build back your emergency fund. We’ve asked financial experts about why you should think about living on one income—and how to make it happen without it feeling like a punishment. She says when you live on one income even with a second one coming in, you will have more opportunity to invest and build wealth or even have an opportunity to start your own business or retire early. “With restricted budgets, people often get tied down to a job they may not like because they can’t afford to lose the income or associated benefits like health insurance,” Woroch adds. “To begin weaning yourself off the second salary, take stock of your expenses,” says Snigdha Kumar, personal finance expert and head of product operations at Digit. Kumar recommends assigning your monthly obligations into categories to help you prioritize your spending. “Identify the ‘must-haves’ and eliminate some of the ’nice-to-haves’ and consider paying the ‘must-have’ expenses with the higher salary,” she advises. For instance, if you earn $50,000 and your partner earns $35,000, consider using the higher salary ($50k) to pay for living expenses and save the other towards retirement, emergency funds or investing for a mortgage down payment, Kumar says. “Many dual-income families take on expenses based on the money both partners earn. There is nothing wrong with this approach, but if couples want to turbo charge their finances and gain some form of financial independence, make sure a single salary can cover basic living expenses,” she adds. “By doing this, you get the flexibility of saving the other salary, investing it, and letting it grow into a big retirement nest egg,” says Kumar. Another bonus of living a bit more modestly is that you can use the savings as a reward. “You can even save for a vacation or that car you wanted,” continues Kumar. Plus, living on just one salary when you actually have access to two is a smart way to ensure family stability and resilience, says Kumar, especially in these uncertain pandemic times. “Living below your means on just one salary for your monthly costs will help protect you from any future, unexpected shocks,” she says. For example, if you depend on both incomes for supporting your household and one of you suddenly loses a job or is unable to work due to health issues, you are in a better position because of your existing one-income approach. “Once you have a clear picture of everything you spend money on, it can be easier to see where you want and need to cut back on spending,” says Bringle. “For example, maybe you look at your spending list and are surprised by how much money you spend on subscriptions you never use,” says Bringle. Then, choose categories to spend some money on, but reduce. “Maybe you could replace two meals out with two meals made at home each week, if you eat out several times a week,” says Bringle. “The right balance for you will vary depending on your hobbies, needs, and goals.” “And the same goes for your partner,” she stresses. “If you get too restrictive with your budgeting, it can be just like a crash diet you can fall off the wagon pretty quickly.” Instead, pick a budget that’s sustainable for both of you over the long run. According to Bringle, an example might be that you absolutely love going to yoga, and you go all the time, so your monthly yoga studio subscription is a “no-go” when it comes to finding places to slash in the budget. “If you think you will be tempted to use the second salary, I recommend creating artificial guardrails to ‘hide’ the money from yourself,” states Kumar. For instance, she suggests to max out your 401K contributions for the year, set-up a recurring payment from your salary towards your emergency savings account or use “robo advisors” such as Digit, Wealthfront, and Betterment to set aside money every month towards investment goals such as your mortgage or child’s education. But, she cautions, don’t be too hard on yourself if you have to occasionally dip into portions of your household’s second salary. “Life happens, and it may not be easy to completely wean yourself off the second salary at first, but you should aim to use less of it as you progress on your journey,” says Kumar. “Remember: Slow and steady wins the race.”
